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QE has (nearly) ended, but how will the Fed unwind it?

This post is about the US, obviously - though the same considerations apply in the UK as well.

The Fed’s large-scale asset purchases (LSAPs, popularly known as QE)
have been tapering off for some time now and are expected to end this
month. But even though the Fed won’t be making any new purchases, it
will still have the largest balance sheet in history. All the securities
it has purchased in three rounds of QE and Operation Twist are sitting
on its balance sheet. And the banking system is awash with the excess
reserves created as a consequence of those purchases.

It is clear now that monetary base creation on this scale does not cause runaway inflation, as was feared
by many. And it does appear to have prevented the US from experiencing
severe deflation in the aftermath of the financial crisis. But as the US
economy recovers, the question arises whether the Fed should start
shrinking its balance sheet – unwinding QE.

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